: Debtors’ Prison?: Candidates Complain Of Financial Nightmare Caused By Confusing Campaign Finance Rules

Ethel Chen has a nearly $300,000 debt hanging over her head, but it’s not a mortgage or business loan. Her creditors are not mobsters or loan sharks, but they want their money, and they want it now.

The pressure to repay the debt weighs heavily on her mind, shaking her nerves to the point where she often has nightmares about it. At times, she felt the only escape would be to take her own life.

“Sometimes you want to kill yourself, you want to commit suicide,” Chen said.

Chen did not make a bad investment or get scammed: she owes the money to the Campaign Finance Board as a result of penalties she incurred during a 2001 run for City Council.
The CFB enforces the policies expressed in the Campaign Finance Act, legislation passed in 1989 that authorizes candidates to receive taxpayer dollars for their campaigns in exchange for following certain limitations when fund-raising.

Participation isn’t mandatory, but the advantages are considerable. Up to a limit, candidates can receive funds as much as six times the amount they raise on their own. The basic objective is twofold: to reduce monetary corruption in politics and to encourage more average citizens to seek office.

But candidates who break the rules, even unknowingly, are fined civil penalties that can reach into thousands of dollars. Chen’s mistake was spending more money than she was allowed, which, combined with other minor violations, led to total fines of $291,363.

Chen, while an extreme case, is hardly alone. A large number of CFB participants ultimately end up paying fines after their campaigns are audited, including nearly every sitting Council member from Queens.

Fear of these penalties, many officials say, actually has begun to discourage potential candidates from considering running campaigns – essentially turning the purpose of the CFB on its head. While many believe the CFB could still be a valuable tool and even a model for campaign finance elsewhere, those familiar with the program are calling for reforms to make the process more transparent and less punitive.

One Fine Day
CFB records show that dozens of candidates end their campaigns owing more than $10,000 in recommended penalties. Of those, some debts are much higher, and campaigns that reach $50,000 in fines are not uncommon.

In Queens districts alone, there have been several heavily fined campaigns, including those of well-known political figures. Councilman James Gennaro (D-Fresh Meadows) was assessed $13,588 in penalties for his 2001 campaign, for example, as well as Councilman Leroy Comrie (D-St. Albans), who was hit with fines of $11,348.

But politically established candidates – or election winners in general – usually have the means to pay back their campaign debts, either through fundraising or personal wealth. A heavier burden lies on average citizens who make underdog runs for public office. While they may need the money the most, they often are the least prepared to handle the complexity of the process.

The CFB levied penalties against the majority of candidates who ran in 2001, a political cycle that insiders deemed particularly frantic because many inexperienced candidates were seeking open City Council seats that were being vacated because of term limits.

While candidates do make legitimate mistakes, often auditors can be overly aggressive in assessing fines, tending to focus on small details of the law, some political officials said.

“They fine people for minor technicalities, which defeats the purpose of the program, which is to entice people to run for public office,” said Councilman Peter Vallone Jr. (D-Astoria), who stopped accepting matching funds out of frustration over the program.

Well-Intentioned
Lawrence Laufer, a former counsel for the CFB who now advises campaigns, said many potential candidates come to him for advice, and by the time he explains the commitment needed to participate in the CFB program, they decide not to run.

“If the expected outcome is the average campaign can come through without sanction, that has proven to be otherwise,” Laufer said. “Think of it this way: everyone has to deal with the IRS, but not everyone has to deal with an IRS audit. Imagine dealing with an audit, and having that type of review, and that’s what it’s like with CFB and political campaigns.”

The CFB attempts to educate candidates and campaign treasurers through seminars and handbooks, officials there said. A candidate services unit also helps campaign staff by answering questions about the audit process.

All candidates are entitled to a hearing before penalties are assessed, where they can dispute alleged instances of noncompliance. The rules may be strict, but that’s the price of receiving public money, CFB officials said.

“Campaigns are always held accountable for complying with the spending limits,” said Kate Schachem, a spokeswoman for the CFB. “By joining the program, candidates agree to adhere to strict contribution and expenditure limits in exchange for receiving public taxpayer dollars.”

Since 1997, the CFB has assessed $1.6 million in penalties, managing to collect roughly half that amount, according to CFB officials. While the fines are small in comparison to the more than $80 million the CFB has allocated to candidates during that time, individual campaigns often end in the red, and additional expenses can be crippling to a candidate’s financial situation.

Chen said the penalties have put both her and her family under enormous economic strain. Although she remains involved in politics as a district leader, she vows never to run for another City office. She tells others to do the same; it’s not worth it.

Communication Breakdown
Many candidates who have been heavily penalized contend that the CFB policies – over contribution limits, corporate contributions, and campaign expenditures – are unclear or subjective, leading to unfair, or at least uneven, application of the law.

Arthur Cheliotes, a pro-union candidate who lost a primary to Councilman Tony Avella (D-Bayside) in 2001, reached a settlement with the CFB in December to pay $25,000 in penalties, which had originally exceeded $120,000. He has been holding fund-raisers to pay off the debt.

At question is whether Cheliotes went over the $137,000 spending limit for council primary campaigns. While his total expenditures were $202,049, according to campaign finance records, Cheliotes argues that much of that money should be exempt from the limit under CFB bylaws, which does not count expenses such as petitioning.

But the CFB interpreted the situation differently, determining that he had gone grossly over the expenditure limit, an infraction that carries a penalty equal to three times the overage. The largest campaign debts are usually a result of this policy.

Cheliotes says the CFB prohibited him from exempting several costs that they permitted other campaigns to claim, leading him to believe he had treated unfairly harsh.

“From what I have seen, the attitude of the auditors is that if you are a politician, than you must be a criminal,” Cheliotes said. “And if you’re a labor leader, God help you, you really must be a criminal.”

Many political officials agreed that dealing with the CFB could sometimes seem like hitting a moving, blurry target.

When Vallone participated in the CFB in 2001, officials there once told him that a fund-raiser at a baseball game did not qualify for matching funds because the tickets were an “enduring and intrinsic item,” the same as a watch or car. Not only was that ridiculous, Vallone said, but he had done such fund-raisers in the past without it being an issue.

Councilman Dennis Gallagher (R-Middle Village) said he once asked the CFB to review several potential contributions, and officials there told him they would be acceptable.
During the campaign’s audit, however, he was penalized for those same contributions.

CFB auditors are either inexperienced or lack insight about running actual campaigns, several political officials said, a result of frequently changing staff – many auditors do not work for more than one election cycle.

“I have, in general, been satisfied with the response of the CFB, but they have had some turnover, and in any organization, turnover presents a challenge,” said Councilman John Liu (D-Flushing).

CFB officials insist the program is impartial and fair. “The Board’s action in all cases reflects a non-partisan assessment of the facts, and the Board considers both aggravating and mitigating factors,” Schachem said.

Laufer, the campaign consultant, said he believes these disputes could be avoided if the CFB took a more educational approach to auditing: explain why a particular case is an infraction, for instance, instead of immediately levying penalties.

“We don’t have to look at a situation in the worst possible light,” Laufer said. “We should audit to look for ways to find you in compliance.”